No matter who it’s from; be it a stockbroker or a host of a radio show, the same financial tips and recommendations can be heard repeated often. These ideas appear reasonable, however, they are typically simple and straightforward aphorisms that can be comprehended without having to weigh the fiscal implications, though they might not be precise. Using money-related idioms can result in major issues down the road, and some families can be years or even decades behind others who have been smarter with their money. We also discuss commonly used sayings that can stop you from achieving wealth.
What are some cliches about money that are not true?
Sayings that tell someone or a couple to give up their future goals for instant results may create more problems than they fix. Those that pay attention only to the finances of a single household and disregard those of others are likely to create more issues.
Since these cliches are sometimes uttered by specialists who possess official qualifications or licenses (such as CPAs, financial advisors, and financial counselors), far too many people just accept them without further thought. Examine the four money expressions below, accompanying why they are prevalent (the explanation), the way they can harm your home budgetary status (the issue), and the options you have as a substitute (the alternative).
Debt Is Bad
This is likely the most controversial money cliche on the list, but also the most important.
It can be highlighted by the fact that as recently as early 2022, you could borrow money to buy a single family rental house at roughly 4-5% interest rate and then turn around and post-purchase get very reasonably get return of 20%+ annually.
Where does the 20% return come from? From each of the four ways that you can earn money in real estate. These include cash flow, appreciation, tax savings and amortization (tenants paying your mortgage off). Combined together, these very conservatively give you a return of 20% on your single family home portfolio.
Classic arbtrage where earn off of the spread between 5% and 20%.
Pay Off Your Debt Before Saving or Investing
This money cliché has been around for generations. It is likely that you will receive this information from a Certified Public Accountant or your personal financial consultant. Many purchasers wrongly think that if an expert has given advice, it must be accurate. Nevertheless, most families may be better served by changing the common sayings to fit their own individual situations and individualities.
The rationale for paying down debt prior to saving or investing money.
Advisors typically recommend that their clients clear off any debts before putting money away into savings or investments, since the rates of interest owed on debts will usually be higher than what can be earned from said savings or investments. When customers have paid off their debts, they will be instructed to begin saving and investing.
Postponing putting money away for savings and investing until after paying off debt can be detrimental.
All three of these activities are more than numbers. Debt repayment, setting aside money in case of an emergency, and putting money away for future needs require dedication, actions that are repeated on a regular basis, and correct attitudes. If you don’t begin an undertaking until after you complete another, the odds of you actually starting it may be quite low.
Never Pay off Your Mortgage
One may hear this oft-repeated phrase from their money manager, tax specialist, and even their loan provider.
The Justification for Never Paying off Your Mortgage
Homeowners with a mortgage are given definite benefits from existing tax legislation. The law is rather basic, however it permits homeowners to subtract the interest from their reported earnings, decreasing the sum of taxes they owe for the entire period of the loan. These tax savings are not insignificant.
Thus, experts generally agree that the taxation advantages of having a home loan outweigh any likely income generated through saving, stock market trading, or other kinds of investments.
The Problem with Never Paying off Your Mortgage
Owning a home is not always about bottom-line financials. The Great Recession should have illustrated to homeowners that financial freedom goes beyond tax relief and deductions.
Completing your mortgage payments gives you the opportunity to benefit from higher financial independence. No lender has any claim on your home.
In times of economic difficulties or health crises (or any period of time), it is not relevant how punctually you may have been paying your mortgage – a couple of months with no payments due to being laid off or getting ill could lead to the repossession of your house.
Do you think it is possible to secure a refinance without any kind of dependable income? If the housing market declines like it did during the great recession, you could still be unable to refinance even if you have a stable income if your home’s worth has gone down below what you owe on your mortgage.
Always Borrow to Buy a Vehicle if the APR Is Less than Inflation
This expression is usually attributed to either a financial counselor or an accountant. It appears to be a wise move to purchase your cars with a loan at discounted rates of interest. This saying, just like many others, overlooks both extended-term circumstances and personal problems.
The Justification for Borrowing to Purchase a Vehicle
The math for this cliché advice is straightforward enough. If the Annual Percentage Rate (APR) on your loan is less than the rate of inflation, then it can be considered as if the lender is paying the difference between your APR and the inflation rate. In what cases would it be a bad idea to borrow money for a vehicle?
The Problem with Borrowing to Buy a Vehicle
Unlike households that own properties, automobile and truck owners have no programs given by the administration, and almost no nonprofit organizations to contact for assistance when they are delayed in their payments for the vehicle loan. The value of the car is lower than what the borrower owes, so it’s unlikely to be bought. No one will be keen on taking over the loan, supposing that it is doable for another person to do so.
The borrower has two options when it comes to their car that are both unpleasant consequences: giving the car back to the lender willingly or waiting until the lender reclaims it.
Regardless of whether the borrower goes through with a voluntary repossession or not, the same unfavorable impact to the borrower’s credit will remain. Despite allowing the borrower to avoid any additional fees related to repossession, this outcome is the same.
Never Use Credit Cards
This idiom is likely the most recent of the ones listed in this article. This statement has become widely accepted, which could be attributed to the attention it has gained from popular radio hosts and online figures.
The Justification for Never Using Credit Cards
Here’s how the story goes. It is extremely simple to acquire an inordinate amount of credit card debt, and it is unacceptable how rapacious credit companies are; as a consequence, individuals should abstain from using these products.
The Problem with Never Using Credit Cards
This advice fails to be accurate because it is based on fear. This advice may provide short-term results, but it doesn’t address the root of the issue.
This counsel is a reflexive response prompted by trepidation, not by the truth. If you’re looking to buy a house, you’ll need to take out a loan, known as a mortgage. If you have demonstrated a responsible attitude to paying off previous debts over several years, then a mortgage lender may offer you more favorable repayment options.
Rather than teaching consumers the self-control and financial systems necessary to avoid taking on credit card debt and to build their credit, this common advice completely overlooks the cause of credit card debt and inhibits a consumer’s chance of enhancing their credit rating.
4 common clichés that keep you from getting rich
Money Saying #1: ‘Carpe diem!’
No matter where you heard it, “Carpe diem!” urges you to experience life and not consider what may happen in the future. The phrase, which translates to “Seize the day!” was originally used by Roman poet Horace, and again found associated with ‘Dead Poets Society’ when a group of schoolboys used it as motivation to live their best lives.
That mindset can lead to buying items without thinking, which creates a nice feeling initially but eventually leads to much regret.
Go ahead and book that time-limited cruise to the Galapagos Isles you got; after all, you only have one life to live! Making a spontaneous journey that would be an extraordinary experience could cause a significant blow to your already fragile finances.
Mary Gresham, the creator of Atlanta Financial Psychology, has her customers conduct a visualization workout in order to grasp the effects that their purchases have on them. This is part of the wiser money attitude.
She suggests having people take a seat when they are considering a purchase they may regret later and consider how they will feel about it in a week, a month, and a year.
In seven days, you can likely imagine yourself indulging in that costly tech device purchase. When the bill for your credit card arrives a month from now, how will you feel about spending the money? Did you lack funds for something else you required as a result? Gresham predicts that you will likely want to upgrade in about a year’s time.
The objective of this activity is to cause you to take your time reflecting on whether or not you really need what you’re about to buy, or if it’s just to receive an injection of dopamine.
“It’s like any other thing that gives you a biochemical high, like drinking or eating too much,” Gresham says. “It becomes addictive.”
Money Saying #2: ‘If I save enough now, one day I’ll be happy’
The debate surrounding this saying will forever rage on. No matter what research says, there is always contrasting evidence that shows that you cannot wait on the happiness that wealth may bring, but rather enjoying your life now is much more important.
Contrast this with the previous money saying of seize the day and it can indeed become confusing. Balance between the two is key here.
No matter what opinion someone has, there’s one truth that cannot be denied: Financial worries can induce major stress – and how content can a person be with continuous money troubles?
Financial concerns have been the top cause of worry for Americans since 2007, revealed in a survey conducted by the American Psychological Association.
The way to avoid letting financial anxieties harm your mental health is to adjust your mindset when it comes to money.
Even if you owe lots of money in credit card debt or student loans, if you plan a way to get out of debt, you will start to feel better when you enact your plan.
Just keep in mind that having fun does not require a lot of money.
Money Saying #3: ‘A leopard can’t change its spots.’
This expression has an undercurrent that suggests that your true nature is fixed and cannot be altered.
Unfortunately, that point of view means you are prone to the misconception of believing “I will never be able to get on top of my finances as I have never been good at managing money”.
In order to combat the sense of desperation related to your finances, strive for realistic and manageable monetary objectives that you are able to attain. Gresham recommends starting with a single goal, so you don’t feel overwhelmed.
It can be tough for individuals to save money for something that won’t be completed until much later on, but you can get used to being thrifty by starting with a small amount. As you gain experience and save more, you won’t miss the money as much.
Money Saying #4: ‘Do what you love.’
It sure would be amazing if we could feel passionate about our daily work, instead of just working for the money.
In the end, isn’t everyone keen on being in charge of infant pandas or crafting illustrations for kids’ books for a job — even though you’re not going to get super wealthy from it?
It is true that there are times when one must succumb to the demands life puts on them and take a job that pays more, even if it is not their dream job, mostly when they have financial obligations.
What about you? What cliche about money do you find incorrect?
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor, media buyer, faithful Red Sox Fan.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here, or get a hold of him on Facebook or Twitter.